The issue of public debt sustainability

The issue of public debt sustainability arises in very different ways depending on whether the real long-term interest rate is higher or lower than real long-term growth (potential growth). If the real long-term interest rate is lower than real potential growth, the public debt ratio converges towards a stable level in the long term. The question is whether or not the public debt ratio that will be achieved in the long term can be financed. If the real long-term interest rate is higher than real potential growth, to prevent the public debt ratio from diverging, the country has to generate a primary fiscal surplus (excluding interest on the public debt) that exceeds the product of the public debt ratio and the gap between the real long-term interest rate and potential growth. We examine public debt sustainability in the United States, the United Kingdom, Germany, France, Spain, Italy and Japan , and discuss the outlook for the real long-term interest rate. We can see that public debt sustainability is ensured only in Japan, both when the real long-term interest rate is lower than the potential growth rate and when it is higher.